Goldman cuts gold price forecast through 2014 as cycle turns

The turn in the gold price cycle is accelerating after a 12-year rally as the recovery in the U.S. economy gains momentum, according to Goldman Sachs Group Inc., which reduced forecasts for the metal through 2014.

The bank cut its three-month target to $1,530 an ounce from $1,615 and lowered the six- and 12-month predictions to $1,490 and $1,390 from $1,600 and $1,550. Goldman recommended closing a long Comex gold position initiated on Oct. 11, 2010 for a potential gain of $219 an ounce, analysts Damien Courvalin and Jeffrey Currie wrote in a report today.

Gold dropped 5.8% this year on speculation that the Federal Reserve may pare its stimulus amid an economic recovery. The gold price is in bubble territory, Societe Generale SA said in an April 2 report. Assets in the SPDR Gold Trust, the biggest exchange-traded fund backed by bullion, declined to about 1,200 metric tons yesterday, the least since June 2011. Deutsche Bank AG cut its 2013 gold outlook yesterday by 12%, citing a strengthening dollar and a lack of haven buying.

“Despite resurgence in euro-area risk aversion and disappointing U.S. economic data, gold prices are unchanged over the past month, highlighting how conviction in holding gold is quickly waning,” the Goldman analysts wrote in the report. “While higher inflation may be the catalyst for the next gold cycle, this is likely several years away.”

Gold for June delivery on the Comex in New York fell 0.5% to $1,579.30 an ounce as of 8:52 a.m. local time. The metal advanced 1.1% in March, the first monthly gain since September, as policy makers wrangled over Cyprus’s 10 billion-euro ($13 billion) bailout.

Targets Cut

Goldman cut its 2013 gold estimate to $1,545 an ounce from $1,610, trimmed its 2014 forecast to $1,350 from $1,490, and set year-end targets of $1,450 in 2013 and $1,270 in 2014. Goldman recommended starting a short Comex gold position, targeting $1,450 with a stop at $1,650, the analysts wrote.

Futures averaged a record $1,671 last year and the 12 straight annual gains in London were the best run in at least nine decades. Bullion will fall to $1,375 by the end of the year as a U.S. recovery leads to rising interest rates, Societe Generale said in the April 2 report. Credit Suisse Group AG cut its 2013 estimate by 9.2% to $1,580 a day later.

Barclays Plc, Credit Suisse, Societe Generale, Danske Bank A/S and BNP Paribas SA are among banks predicting lower average prices in 2014 than this year. While Deutsche Bank lowered its 2013 gold forecast to $1,637 yesterday, it still expects prices to average $1,810 next year. Bullion futures climbed to an all-time high of $1,923.70 in September 2011.

ETP Holdings

Holdings in exchange-traded products have shrunk 7.6% this year, compared with gains in silver, platinum and palladium, data compiled by Bloomberg show. They were 2,432.3 tons yesterday, compared with an all-time high of 2,632.5 tons in December. Speculators held a net-long gold position of 47,164 contracts in the week ended April 2, down 76% from October, U.S. Commodity Futures Trading Commission data show.

“We believe a sharp rebound in gold prices is unlikely,” Goldman said. “The fall in prices could end up being faster and larger than our forecast, as aggregate speculative net long positions across Comex futures and gold ETFs remain near record highs.”